P/E Ratio

Price paid per rupee of earnings.

The price-to-earnings ratio tells you how many rupees investors pay for one rupee of annual profit. It's the most quoted number in investing and a fast cheap-vs-expensive read. P/E = Share price ÷ Earnings per share (EPS) Share at Rs 1,000, EPS Rs 50. P/E = 1,000 ÷ 50 = 20. You pay Rs 20 per Rs 1 of yearly profit. Low P/E Cheap vs earnings, or the market expects earnings to fall. Ask why. High P/E Expensive, or strong growth expected. Growth must justify it. Compare within sector A 'normal' P/E for a bank differs from a hydropower firm. Quick cheap/expensive read Easy peer comparison Widely understood Useless for loss-makers Distorted by one-off profit Varies by sector and growth

Part of Learn NEPSE Investing, a free course on reading Nepali company accounts and charts. Section: The Ratios.